Advice on MPP for Rental / Flip in 2 years

[Rowdy B.]

Hi all -

I'd like some advice on the max purchase price (MPP) of my first investment property. Using the 70% method, I'm coming up with a MPP of $57,500, using another method previously posted on BP ( ), I'm coming up with $75,000.

If anyone has the time to wade through all the details below and provide some advice, I'd certainly appreciate it.

Thanks!

Rowdy

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Primary Goal: generating a 20% profit through reselling

Secondary Goal: achieving more than 10% annual return on total investment in rent.

Due to the requirements of the retirement fund I am using to purchase it, I can only purchase property using cash (cannot take out a loan), and have to hold it for at least two years so as not to be identified as "carrying on a business". I am in Australia at the moment, and all the information I can get is from the selling agent, my buyers agent, and a very reliable and helpful relative who visits properties and sends me photos. I've been looking for almost a year, and this is the best deal I've found so far.

Here's what I'm looking at:

• 4 bed 2 bath
• split level home (basement+ground level)
• carport (no garage)
• 1800 sq ft home
• 6000 sq ft fully fenced lot
• Selling agent's resale estimate: $135,000 - $140,000
• Buyers agent resale estimate: $130,000
• Zestimate: $125,000
• Selling agent's estimate of repairs $10,000 - $20,000
• Buyers agent's estimate of repairs $20,000
• Selling agent's Prop. mgr estimated rent $1000 - $1100/month
• Buyers agent estimated rent $1200 - $1400/month
• Zestimate rent: $900
• My guesstimate of other costs (closing + unknown): $10,000

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Here are the figures I plan to use:

• Sale price: $125,000
• Total costs: $30,000 = $20,000(repairs) + $10,000(other)
• Rent: $900/month

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Max Purchase Price (MPP) using 70% rule: $57,500

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MPP = Sales Price * 0.7 - Total Costs

MPP = ($125000*.7) - $30,000 = $87,500-$30,000 = $57,500

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Max Purchase Price using: Sales Price - Other Costs - Profit - Repair Costs: $75,000

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Desired Profit: $20,000

MPP = $125,000 - $10,000 - $20,000 - $20,000 = $75000

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Rent Yield (MPP $57,500): 12.3%

Rent Yield = Annual Rent / (MPP $57,500 + Other Costs + Repair Costs)

Rent Yield = ($900*12) / ($57,500 + $10,000 + $20,000) = 12.3%

Rent Yield (MPP $75,000): 10.2%

Rent Yield = ($900*12) / ($75,000 + $10,000 + $20,000) = 10.2%

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More details (from my relative):

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Repairs needed:

• New shingles for roof. Current shingles do not meet standards needed to qualify for insurance.

• Doors and door frames

• Some windows

• Ceiling in basement

• Kitchen and bathroom floors (new tiles or laminate)

• LOTS of paint, indoor and outdoor

• All new kitchen appliances

• Some drywall repairs but nothing extensive

• Bathroom tile, shower, faucets, vanity

• All new light fixtures

• Some vent repairs and new vent covers.

• Possibly some new carpeting.

Pros:

• Hardwood floors upstairs are in good condition

• Fairly new water heater and furnace

• Nice sized fenced in back yard

• Car port

• 2 full bathrooms

• Good sized master bedroom and bathroom downstairs

• Lots of storage, closets and cabinets in kitchen are in good shape.

• In a decent neighborhood on the outskirts of town.

• Structurally sound

• Basement is mostly finished